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FRANKFURT, Dec. 4 (AP) — The Saudi-led OPEC oil cartel and allies including Russia are holding back on their goal of shipping oil to the global economy as the fallout from new Western sanctions on Russia lingers. Certainty, which may require a significant amount of oil to be withdrawn from the market.
The decision at Sunday’s meeting of oil ministers came a day before plans to begin two measures aimed at hitting Russia’s oil revenues in response to its invasion of Ukraine. These are: the EU boycott of most Russian oil, and the EU and G7 price cap of $60 a barrel on Russian exports.
It was unclear how much the two sanctions would remove Russian oil from global markets, which would tighten supply and drive up prices. The world’s second-largest oil producer has been able to reroute most, but not all, of its original European cargoes to customers in India, China and Turkey.
The impact of the price cap is also up in the air, as Russia said it could simply stop deliveries to countries that abide by the restrictions. But analysts say the country may also find ways to circumvent certain shipment caps.
Oil prices, on the other hand, have been trading at low levels amid concerns that the coronavirus outbreak and China’s strict zero-COVID restrictions will reduce fuel demand in one of the world’s major economies. Fears of recession in the U.S. and Europe also raised the prospect of lower demand for gasoline and other fuels made from crude oil.
This uncertainty is why the OPEC+ alliance agreed in October to cut production by 2 million barrels per day starting in November, and the cuts are still in place. Analysts say less than the full cuts are on the market as OPEC+ members are already unable to meet their full production quotas.
In light of the recent weakness in oil prices, OPEC+ issued a statement on Sunday rebutting criticism of the October decision, saying that production cuts “have been reviewed by market participants as a necessary and correct course of action” to stabilize the global oil market. “
The White House has been pressing for an increase in oil supplies to lower gasoline costs for U.S. drivers, calling the cuts “short-sighted” at the time and saying the alliance was “aligned with Russia.”
Oil prices have fallen since summer highs as the global economy slows, with international benchmark Brent crude settling at $85.42 a barrel on Friday, down from $98 a month ago. This lowers gasoline prices for drivers worldwide.
The average gas price for U.S. drivers has fallen to $3.41 a gallon in recent days, according to AAA, the federation of auto clubs.
While the U.S., Europe and other allies seek to punish Russia for the war in Ukraine, they also want to prevent a sudden loss of Russian crude that would lead to a recovery in oil and gasoline prices.
That’s why the G-7 price cap allows shipping and insurers to ship Russian oil to non-Western countries at or below that threshold. Most of the world’s tanker fleet is insured by G7 or EU insurers.
Analysts say Russia could circumvent the cap, as Iran and Venezuela have done, by organizing its own insurance and using the world’s mysterious fleet of off-the-books tankers, but that would be costly and cumbersome.
The cap of $60 a barrel is close to the current price of Russian oil, meaning Moscow could keep selling while rejecting the cap in principle. Petroleum use also fell in winter, partly due to fewer people driving.
“If Russia ends up extracting more than about 1 million barrels a day, the world will have an oil shortage and that needs to be offset somewhere, whether it’s from OPEC or not,” Jacques Rousseau said. Clearview Energy Partners. “That’s going to be the key factor — figuring out how much Russian oil is actually leaving the market.” (AP)
(This is an unedited and auto-generated story from a Syndicated News feed, the content body may not have been modified or edited by LatestLY staff)
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